What is Zero Base Budgeting?

Problems of financing activities and evaluating their effectiveness are not confined to government. Business and industry have also had to confront these issues. Zero-base budgeting (ZBB) developed in industry during the same period when some in government were installing elements of it there.

ZBB involved three basic procedural elements within each administrative entity. The first was identification of decision units, the lowest-level entities in a bureaucracy for which budgets are prepared— staffs, branches, programs, functions, even individual appropriations items. Second was analysis of these decision units and formulation of decision packages by an identifiable manager with authority to establish priorities and prepare budgets for all activities within the administrative entity. The third procedural element was ranking of decision packages from highest to lowest priority.

Higher-level agency officials next established priorities among all packages from all units, with the probable available funding in mind. The high-priority packages that could be funded within the probable total dollar allocation were then included in the agency budget request, and the others were dropped.

Each manager prepared several different decision packages pertaining to the same set of activities to allow those conducting higher-level reviews to select from alternative sets of proposals for the same program or function. Packages received higher priority as their cost declined, assuming the same set of activities. In practice, ZBB did not project budgetary allocations at “zero” before analysis of activities was begun or reallocate funds on a large scale from some policy areas to others.

In theory, it called for re-examining every item in the budget periodically— every one, two, or five years. Realistically, such a schedule would not be workable because budget makers did not have the authority or the tools to conduct these examinations on a regular basis. Although regarded by some as a rational-comprehensive budgetary tool, the evidence suggests that ZBB was essentially a form of incremental budgeting.